The Washington-based International Monetary Fund (IMF) has been monitoring the performance of the Grenadian economy since the implementation of the Structural Adjustment Programme (SAP) under the ruling New National Party (NNP) government of Prime Minister Dr. Keith Mitchell.
The fund has compiled an 84-page report, which looked at the critical issue of Improving Public Finance Management in Grenada.
The following remarks were made by the IMF:
Reform Priorities Identified by the 2015 Public Expenditure and Financial Accountability Assessment
Grenada recently underwent a public expenditure and financial accountability (PEFA) assessment, conducted by CARTAC.
The assessment reviewed the performance of its public financial management (PFM) and identify reform priorities. Overall, the assessment concludes that PFM in Grenada has improved since the last assessment in 2010 and recommends a continuation of ongoing efforts to strengthen PFM in Grenada.
Reform priorities are focused in three main areas:
Aggregate Fiscal Discipline:
The assessment concludes that aggregate fiscal discipline has improved markedly since the government embarked on its home-grown economic reform program, supported since June 2014 by the IMF arrangement under the Extended Credit Facility (ECF).
Most notably, the assessment recognizes substantial improvements in the budget preparation process, now supported by the requirements mandated in the 2015 Public Finance Management (PFM) Act, which have strengthened fiscal discipline.
Looking ahead, further development of monthly cash flow forecasting linked to budget allocation and commitment controls, will be required to strengthen management of fiscal outcomes.
Similarly, while the recent reforms to strengthen oversight of state-owned enterprises and statutory bodies will mitigate fiscal risks, continued improvements in external oversight mechanisms and parliamentary scrutiny of government financial operations are needed to further enhance transparency and accountability.
Finally, the mechanisms for the contracting of debt and issuance of government guarantees, reporting of government guaranteed debt, and high quality of debt data all contribute to enhance fiscal discipline but should be complemented by completion and implementation of the authorities’ medium-term debt strategy.
Strategic Allocation of Resources:
The assessment recommends that the strategic allocation of resources be strengthened by systematically linking the medium-term budget to sector strategies and performance indicators.
This would complement the recent removal of special warrants and the limitations placed on the number of supplementary budgets in the 2015 PFM Act to ensure the strategic priorities determined through the budget formulation process remain in place.
The Government’s strategic allocation capabilities would also be enhanced by including a systematic annual report on the financial operations of extra-budgetary funds, which would provide a more comprehensive view of its operations.
Operational efficiency:
A new procurement law (the Public Procurement and Disposal of Public Property Act) was put in place in 2014. However, the assessment concludes that to overcome remaining weaknesses in the procurement system the new law needs to be made operational.
The assessment also identifies the need to strengthen accountability mechanisms, including the timeliness of financial statements, to ensure that external audits are effective counter checks of the efficient use of resources.
On the revenue side, the assessment recommends strengthening operational efficiency by addressing the accumulation of tax arrears, which undermine the credibility of tax assessments and the principle of equal treatment of taxpayers.
The report recognizes the recent removal of the use of discretionary exemptions as an important step in this regard. Consolidation of cash balances would also be important for more efficient liquidity management and improve operational efficiency.
Continued improvements in Grenada’s PFM practices are expected to be supported by the strengthened legislative framework put in place under the IMF-supported program.
The framework includes the new PFM Act 2015, Fiscal Responsibility (FR) Act 2015, Public Debt Management (PDM) Act 2015, Public Procurement and Disposal of Public Property (PPDPP) Act 2014, and Customs Act 2015, as well as the new Tax Administration Act expected to be legislated in 2015.
These Acts are designed to ensure the implementation of a medium-term, results-oriented, budget planning and preparation process and to strengthen the authorities’ ability to establish and manage within multi-year fiscal targets. In addition, tax incentive reform has removed discretionary tax exemptions from the various tax acts, and will reduce fiscal risks while supporting operational efficiency.